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Recent reports in the media suggest some lenders may be illegally discriminating against FHA loan applicants for being pregnant or having short-term disabilities.

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FHA Investigates Possible Violations of Fair Housing Act

August 6, 2010 - Recent reports in the media suggest some lenders may be illegally discriminating against FHA loan applicants for being pregnant or having short-term disabilities.

The New York Times reports one example of such possible; reporter Tara Siegel Bernard writes one applicant's lender "...denied her loan after it learned she was on maternity leave. It said she was not "on the job" and assumed she was on short-term disability - a type of income that many lenders do not include on a loan application because it's not considered long term."

As a result of incidents like these, the Department of Housing and Urban Development is investigating lenders and examining lending guidelines under programs such as Fannie Mae and Freddie Mac to see if the rules themselves are open to interpretation in such a way that violates the Fair Housing Act.

According to a HUD press release, "HUD's Federal Housing Administration (FHA) requires its approved lenders to review a borrower's income to determine whether they can reasonably be expected to continue paying their mortgage for the first three years of the loan."
But in the case of expectant mothers, the HUD press release says no FHA-insured lender may inquire about maternity leave as a part of carrying out "due diligence" to establish the credit-worthiness of an FHA loan applicant.

"Lenders must not carry out due diligence responsibilities in ways that have the practical effect of discriminating against recent or expectant mothers," That's according to John TrasviƱa, the department's assistant secretary for fair housing and equal opportunity.

The same rules apply to those on short-term disability leave. FHA-insured lenders may not discriminate against someone on short-term disability when applying for an FHA mortgage.

According to the Department of Housing and Urban Development, borrowers on short-term leave for maternity or disability must show proof of intent to return to work and is permitted to do so. Any reduction of income during the leave must also be documented. HUD representatives announced a review of Fannie Mae and Freddie Mac rules to see whether they violate the Fair Housing act in this area.